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Why a Coronavirus Recession Would Be So Hard to Contain Why a Coronavirus Recession Would Be So Hard to Contain
(7 days later)
It looks more and more likely that the novel form of coronavirus will do meaningful economic damage to the United States. Stock and bond prices already suggest that the outbreak could halt the longest expansion on record and even send the nation into recession.It looks more and more likely that the novel form of coronavirus will do meaningful economic damage to the United States. Stock and bond prices already suggest that the outbreak could halt the longest expansion on record and even send the nation into recession.
The risks loom larger because this particular crisis is ill suited to the usual tools the government has to stabilize the economy. If a recession happens, it will probably be a result of this poor fit between the economic effects of the potential pandemic and the mechanisms the government uses to try to keep the economy growing.The risks loom larger because this particular crisis is ill suited to the usual tools the government has to stabilize the economy. If a recession happens, it will probably be a result of this poor fit between the economic effects of the potential pandemic and the mechanisms the government uses to try to keep the economy growing.
Interest rate cuts by the Federal Reserve — which appeared more likely Friday after a late-afternoon statement by its chairman, Jerome Powell — can lower borrowing costs and raise stock prices. But they can’t replace the goods made by factories closed to keep their workers from getting sick with Covid-19, the serious respiratory illness the virus causes. The government can try to pump more money into people’s pockets directly, such as with tax rebates, but money alone won’t put goods on empty store shelves.Interest rate cuts by the Federal Reserve — which appeared more likely Friday after a late-afternoon statement by its chairman, Jerome Powell — can lower borrowing costs and raise stock prices. But they can’t replace the goods made by factories closed to keep their workers from getting sick with Covid-19, the serious respiratory illness the virus causes. The government can try to pump more money into people’s pockets directly, such as with tax rebates, but money alone won’t put goods on empty store shelves.
Beyond the natural limitations of policy to cushion the damage, there is the economic and political backdrop of the current moment: a Fed with little room to cut already-low interest rates, and a Congress divided along partisan lines while a president seeks re-election.Beyond the natural limitations of policy to cushion the damage, there is the economic and political backdrop of the current moment: a Fed with little room to cut already-low interest rates, and a Congress divided along partisan lines while a president seeks re-election.
If a potential coronavirus downturn were a fire, the recession-fighters would be like a fire brigade low on supplies, fighting among themselves, and probably lacking the right chemicals to quench the flames anyway.If a potential coronavirus downturn were a fire, the recession-fighters would be like a fire brigade low on supplies, fighting among themselves, and probably lacking the right chemicals to quench the flames anyway.
“I’m looking at the combination of fiscal and monetary policy as potential triage,” said Joseph Brusuelas, chief economist at the accounting firm RSM. “All they can do is really mitigate the shock of supply chains and reduce the second-order effects.”“I’m looking at the combination of fiscal and monetary policy as potential triage,” said Joseph Brusuelas, chief economist at the accounting firm RSM. “All they can do is really mitigate the shock of supply chains and reduce the second-order effects.”
A recession, defined as a significant decline in economic activity lasting more than a few months, hasn’t occurred in the United States in more than 10 years. If one happens, it will mean higher unemployment and lower incomes. And it would be a different kind of downturn from most of the recent ones.A recession, defined as a significant decline in economic activity lasting more than a few months, hasn’t occurred in the United States in more than 10 years. If one happens, it will mean higher unemployment and lower incomes. And it would be a different kind of downturn from most of the recent ones.
The core of the economic problem emerging from coronavirus is a “supply shock,” meaning a reduction in the economy’s capacity to make things. Companies in China that have shut down because their workers are quarantined are not making goods. That could eventually mean shortages of certain items for which there are few sources of elsewhere in the world.The core of the economic problem emerging from coronavirus is a “supply shock,” meaning a reduction in the economy’s capacity to make things. Companies in China that have shut down because their workers are quarantined are not making goods. That could eventually mean shortages of certain items for which there are few sources of elsewhere in the world.
Multinational companies typically operate complex supply chains, with lean inventories and essential merchandise that often arrives just in the nick of time. That means American companies that rely heavily on Chinese suppliers might begin facing shortages of key goods in the weeks ahead, said Nada Sanders, professor of supply chain management at Northeastern University.Multinational companies typically operate complex supply chains, with lean inventories and essential merchandise that often arrives just in the nick of time. That means American companies that rely heavily on Chinese suppliers might begin facing shortages of key goods in the weeks ahead, said Nada Sanders, professor of supply chain management at Northeastern University.
“I believe we’re going to have a massive shortage of goods,” she said. “Two weeks ago I told people this was coming. The big problem was economists don’t understand how global supply chains work, how intertwined and interconnected they are.” It is an issue she said would particularly affect pharmaceuticals and electronics.“I believe we’re going to have a massive shortage of goods,” she said. “Two weeks ago I told people this was coming. The big problem was economists don’t understand how global supply chains work, how intertwined and interconnected they are.” It is an issue she said would particularly affect pharmaceuticals and electronics.
Macroeconomic policies can’t really do anything about supply shocks like those. But it’s possible that supply shocks can bleed into demand shocks, and there economic policy can help.Macroeconomic policies can’t really do anything about supply shocks like those. But it’s possible that supply shocks can bleed into demand shocks, and there economic policy can help.
Tara Sinclair, who studies business cycles at George Washington University, compares it to a grocery store. A store with no goods on the shelves has a supply problem, while a store with full shelves but no customers has a demand problem. And it is generally easier to boost short-term demand than short-term supply.Tara Sinclair, who studies business cycles at George Washington University, compares it to a grocery store. A store with no goods on the shelves has a supply problem, while a store with full shelves but no customers has a demand problem. And it is generally easier to boost short-term demand than short-term supply.
But supply problems can bleed into demand problems, and vice versa.But supply problems can bleed into demand problems, and vice versa.
“If first the store is empty of products, and then people don’t go to the store anymore and they lose their jobs, they can’t buy anything,” Ms. Sinclair said. “That’s what we’re risking here.”“If first the store is empty of products, and then people don’t go to the store anymore and they lose their jobs, they can’t buy anything,” Ms. Sinclair said. “That’s what we’re risking here.”
In parts of Italy, for example, where outbreaks of the virus have disrupted daily life, tourism is slowing and restaurants and stores are reportedly empty as people seek to avoid exposure. That could result in waiters and store clerks who endure a drop in income, which could in turn feed back into less demand for all sorts of products, and a weaker economy.In parts of Italy, for example, where outbreaks of the virus have disrupted daily life, tourism is slowing and restaurants and stores are reportedly empty as people seek to avoid exposure. That could result in waiters and store clerks who endure a drop in income, which could in turn feed back into less demand for all sorts of products, and a weaker economy.
Updated June 16, 2020 Updated June 22, 2020
A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
Similarly, businesses might go bankrupt if the financial markets freeze up and they cannot get access to credit, meaning otherwise sound businesses end up laying off employees or closing down.Similarly, businesses might go bankrupt if the financial markets freeze up and they cannot get access to credit, meaning otherwise sound businesses end up laying off employees or closing down.
The role for economic policy, in that sense, wouldn’t be to solve the supply shock, but to try to prevent that initial supply shock from triggering a demand shock.The role for economic policy, in that sense, wouldn’t be to solve the supply shock, but to try to prevent that initial supply shock from triggering a demand shock.
So, for example, the government could offer widespread tax breaks, or direct payments to unemployed workers. The Fed, with interest rate cuts, can help ensure financing keeps flowing. Those actions might in turn give consumers and businesses the space to figure out how to operate despite the problems they face.So, for example, the government could offer widespread tax breaks, or direct payments to unemployed workers. The Fed, with interest rate cuts, can help ensure financing keeps flowing. Those actions might in turn give consumers and businesses the space to figure out how to operate despite the problems they face.
But this is not the only challenge. If coronavirus were to spread widely in the United States, and officials decided to impose widespread quarantines, the economic impact is hard for economists to model. What happens to a service economy if people can’t safely travel, go shopping, or even go to work?But this is not the only challenge. If coronavirus were to spread widely in the United States, and officials decided to impose widespread quarantines, the economic impact is hard for economists to model. What happens to a service economy if people can’t safely travel, go shopping, or even go to work?
The answer is no one really knows. The closest comparison may be the aftermath of the Sept. 11, 2001, terrorist attacks, when air travel was temporarily suspended. But that didn’t keep the vast majority of Americans from going to work.The answer is no one really knows. The closest comparison may be the aftermath of the Sept. 11, 2001, terrorist attacks, when air travel was temporarily suspended. But that didn’t keep the vast majority of Americans from going to work.
And in those more dire scenarios, it’s anybody’s guess how things might shake out.And in those more dire scenarios, it’s anybody’s guess how things might shake out.
“There are a lot of reasons to think we don’t have a lot of tools for this,” Ms. Sinclair said. “It’s more of a supply-side issue, and we can’t do a whole lot to stimulate supply. And if it does trickle over into demand, it will be a real test of whether the Fed has any firepower left and whether we have appetite for the kind of fiscal stimulus that’s actually impactful.”“There are a lot of reasons to think we don’t have a lot of tools for this,” Ms. Sinclair said. “It’s more of a supply-side issue, and we can’t do a whole lot to stimulate supply. And if it does trickle over into demand, it will be a real test of whether the Fed has any firepower left and whether we have appetite for the kind of fiscal stimulus that’s actually impactful.”
In other words, it would be best if the public health efforts to contain the spread of the virus are effective enough that we don’t have to ask very much of the economic firefighters.In other words, it would be best if the public health efforts to contain the spread of the virus are effective enough that we don’t have to ask very much of the economic firefighters.